Comment: FCA wants to tighten DB transfer checks

The Financial Conduct Authority (FCA) has published a number of warnings about pension transfers in recent months. It is an area in which advice firms can expect further regulatory investigations.

For firms giving good-quality advice, and being able to demonstrate it, any investigation by the regulator should be a formality. Most firms have probably undertaken a review of their advice and processes by now.

Experience required

New Model Adviser® has previously written about some firms that have been the subject of FCA action, resulting in these firms ceasing pension transfer business and giving up their permissions.

Now more than ever, firms need to be prepared for the regulator asking questions or a more intrusive investigation. Therefore knowing the experience of your checker will stand you in good stead.

The recent FCA consultation CP17/16 ‘Advising on Pension Transfers’ states: ‘Given the complexities of this area it is our view that the pension transfer specialist qualification alone is not enough to demonstrate this competence. Relevant experience is essential, as is maintaining knowledge.’

Many firms will use suitably qualified pension transfer specialists to check advice. But the regulator is concerned about some lacking the necessary experience (they may not be advising as well as checking).

As a result, there is likely to be an increased focus on the experience of those specialists checking the advice.

Considering the quality of the advice could be dependent on the decision-making of the specialist, enquiring about their experience could be one of the first questions the FCA asks.

So how much experience does a checker need?

The FCA consultation says: ‘We expect firms to make sure that pension transfer specialists have experience on a suitable range of cases’, and that ‘it may be challenging for advisers who are not regularly involved in advising on the conversion and transfer of safeguarded rights to evidence an appropriate level of competence.’

Questions you can ask your checker to determine their level of experience include: How long have they been involved with pension transfers? What volume of business have they dealt with? Have they dealt with a range of different scenarios? Each firm may have different criteria, but this is still going to help in making the right judgement.

The regulator said it has seen cases where a specialist doing a check has simply run the transfer value analysis calculation or checked numbers, rather than looking at the overall assessment of the advice.

Reasonable requirement

The FCA is proposing to enhance the checking specialist’s requirement to assess the ‘reasonableness of the advice’. This means although the checker is not expected to repeat the advice process, a robust check of all elements is expected.

It says ‘checking does not require a fundamental repeat of the advice process, but will involve an independent assessment of the soundness of the basis for the advice.’

Where firms rely on checkers, any time taken to review their checkers’ experience and approach could be well spent. But do not forget advisers are still responsible for the advice, even if they place reliance on a checker.

One year after being accused of breaking a manifesto pledge to extend the benefits of pension auto-enrolment to the self-employed, the government has revealed its strategy: a series of ‘marketing interventions’ and ‘behavioural prompts’.

ADVICE

One year after being accused of breaking a manifesto pledge to extend the benefits of pension auto-enrolment to the self-employed, the government has revealed its strategy: a series of ‘marketing interventions’ and ‘behavioural prompts’.

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